Tax preparers win fight on IRS rules

McLEAN, Va. - The IRS lost a federal appeal yesterday in a legal battle over its effort to institute competency exams and other regulations for as many as 700,000 paid tax preparers.

McLEAN, Va. — The IRS lost a federal appeal yesterday in a legal battle over its effort to institute competency exams and other regulations for as many as 700,000 paid tax preparers.

A three-judge panel of the U.S. Court of Appeals for the District of Columbia unanimously upheld a lower court’s ruling last year that the IRS lacked authority to impose the new rules without congressional authorization.

The regulations were challenged by the Institute for Justice in Arlington, Va., a libertarian legal group that has filed a variety of lawsuits challenging occupational licensing laws. It argued that the proposed regulations for tax preparers were onerous and would have put thousands of mom-and-pop tax preparers out of business.

Dan Alban, a lawyer for the institute who argued the case in front of the appeals court, called the ruling “a clear win both for tax preparers and taxpayers” and said it could have broad implications for federal agencies that attempt to issue regulations without a mandate from Congress.

“Congress never gave the IRS the power to license tax preparers, and the IRS cannot give itself that authority,” Alban said.

The IRS has said the rules are needed to weed out ill-trained and incompetent tax preparers. It said it had the authority to impose the regulations under an 1884 law passed to help Civil War soldiers seeking compensation for dead horses.

That law authorizes the IRS to “regulate the practice of representatives of persons before the Department of the Treasury” but the judges said it should not be stretched to give the IRS regulatory dominion over tax preparers.

“It might be that allowing the IRS to regulate tax-return preparers more stringently would be wise as a policy matter. But that is a decision for Congress and the President to make if they wish by enacting new legislation,” Judge Brett Kavanaugh wrote in an opinion joined by David Sentelle and Stephen Williams.

Kavanaugh was appointed to the court by George W. Bush. Sentelle and Williams are both Reagan appointees.

Yesterday the IRS said it is reviewing the decision and “continues to believe that it’s critical for taxpayers to be able to rely on quality work from tax preparers.”

Paid tax preparers fill out

60 percent of all U.S. tax returns, according to a study from the Government Accountability Office, a congressional watchdog agency. The GAO has found significant problems over the years in the quality of work done by them.

The regulations sought by the IRS would have required preparers to pass a qualifying exam, pay an annual application fee and take 15 hours annually of continuing-education courses. Attorneys and CPAs would have been exempt from the rules.